UPS Q3 Earnings Report is Gut-Wrenching

by Steve Seidl —

Just last month, UPS ended a lengthy series of contract negotiations with its 250,000 unionized employees. The arguments were contentious with workers nearly going on strike. They were demanding better pay for all the company’s workers (not just some of them), limited overtime requirements, and ample notification before UPS adopts new technologies that could potentially automate their jobs out of existence.

UPS finally bowed to some of the union’s demands. In October, the majority of UPS workers—who are represented by the Teamsters Union—voted against the contract, arguing that it will create a second class of workers who will do more work but earn less. Through a quirk of union rules, the Teamsters ratified the contract anyway.

Most recently, the freight department of UPS might also strike. The Teamsters represent about 11,000 freight workers who will vote on Nov. 11 for a renegotiated labor deal. UPS freight workers voted near the start of fourth quarter to reject a tentative labor agreement. The current contract was then extended to Nov. 12.

UPS freight workers’ votes will be counted on Nov. 11. If the contract is voted down, the Teamsters members have already authorized a strike for Nov. 12.

Now, the United Parcel Service has put out its third-quarter earnings report.

Executives should be ashamed.

UPS’s revenue growth increased 7.9 percent year over year in Q3, and diluted reported earnings per share rose a whopping 26 percent.

The company is making significantly more money than it did last year. But it’s refused to pass those gains along to employees as evidenced by this summer’s contract negotiation. Nor is it willing to cut shippers a break, as we see from UPS’s ever-increasing rates and holiday surcharges.

UPS has the ability to lower rates, pay workers more or do both, and still return a healthy profit to investors. The company chose not to make any improvements.

The UPS Q3 Earnings Report

UPS reported $17.4 billion in quarterly revenue in Q3 2018, up nearly 8 percent from $16.2 billion in 2017. The company’s net income jumped from $1.3 billion in Q3 2017 to $1.6 billion in Q3 2018.

This beat analysts’ expectations. Specifically, it beat the Zacks Consensus Estimate by 0.19 percent—not much, but enough to make this the third of the last four quarters in which UPS has surpassed predictions.

Investors will take home $1.82 earnings per share from UPS this quarter. That is 38 more cents per share then Q3 of 2017. Zacks predicts they will collect $7.25 per share for the year after Q4 results come in.

UPS’s shares have lost value this year. They’re down about 4.1 percent, while the S&P 500 has gained about 2.5 percent across the board.

Still, the company is making quite a bit of money. They’re benefitting from last year’s restructuring of the corporate tax code, too. Their adjusted operating profit for Q3 was $949 million.

“We generated another quarter of industry-leading margins and strong free cash flow, and we are confident in the outlook for the business,” UPS Chairman and CEO, David Abney told investors on the reported earnings call.

The earnings report added: “third quarter results benefited from several discrete items including tax that helped to offset unplanned International headwinds from currency and fuel.”

Carriers Are Taking Advantage of Shippers

We’re still waiting for FedEx to announce its 2019 general rate increase. But if its holiday surcharge rates are any indication, we’re expecting rates to rise as they usually do—about 5 percent across the board—with surcharges subject to larger targeted increases.

Again, UPS is a company that took in $1.6 billion in net income after expenses in just three months. To continue incremental increases in fees that many shippers are stuck paying (for example, additional handling surcharges) is just taking advantage of its customers.

But as long as U.S. shipping remains a duopoly between UPS and FedEx, shippers are pretty much stuck—because FedEx does the same thing.

Shippers Can Fight Back

Yes, carriers get to set shipping rates. And yes, shippers are likely going to have to work with either UPS or FedEx—although that won’t be the case forever. The U.S. Postal Service is becoming more popular, DHL has returned to U.S. domestic shipping, and Amazon is building its own shipping service one piece at a time.

Carriers like to describe themselves as the partners of retailers and manufacturers. In reality, they aren’t your partners. They’re for-profit companies selling you a service, and they intend to make as much money as possible doing so.

That’s why shippers need to make sure they’re squeezing as much money as possible out of their carriers’ services.

Shippers can make sure they’re getting the service they were promised. By carefully monitoring your own financial measures by reviewing your invoices, you can hold your carrier accountable and claim any refunds you’re owed for late or missed deliveries. You can also identify hidden fees and tweak your supply chain to dodge them.

Shippers can negotiate harder. Many shippers don’t ask for nearly as much as they could in contract negotiations. Although carriers aren’t willing to on their parcel service for small businesses, they may budge a little—and if they make those changes in the right places, it could save you a ton of money.

Shippers can enlist the help of a professional. Reveel’s expert consultants come from the shipping industry. This means they’ve been on the other side of these conversations and know all the tricks. They can help you identify areas for contract negotiation where you’re most likely to succeed, help you develop a process for auditing invoices and coach you through both processes.

We know carriers are making plenty of revenue each earnings announcement. Reach out today to start saving a little money yourself.

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